CRS objective No 8[1], specified Under point 1.1. that document, is an explanation of the main principles of accounting policy applicable to development activities, in accordance with the Accounting Act and other National Accounting Standards.
Chapter IV of CRS No 8 describes the specificity of the development activities. According to point 4.1.
object of the development project[2] is construction one or more new buildings together with associated infrastructure facilities or redevelopment/improvement of existing buildings, and these buildings or premises are erected for sale one or more than one buyer.
At the same time, sales usually take place before the development project is completed. Such a situation causes difficulties in properly determining the cost of production commensurate with the buildings or premises sold.
The costs of carrying out each development project initiated and the proceeds of the sale of the items generated by these projects shall be recorded separately. In addition, depending on the nature of the development contract concluded, revenues related to development projects may arise at different times.
Therefore, according to point 4.2. CRS No 8, It is necessary to adopt and apply such rules to recognise revenues related to the development project and to charge the developer for the cost of producing sold buildings, which enable the principle of proportionality to be respected under Article 6(2) Accounting Act[3], i.e.
‘In order to ensure that revenue and related costs are commensurate with the assets or liabilities of the reporting period, costs or revenues relating to future periods and related costs that have not yet been incurred shall be included in the reporting period.’
The day of the start of the development project is the day on which the developer started active, documented actions to implement the project. At the same time, according to point 4.3.
CRS No 8 The date of commencement of the development project should not be earlier than the date on which the developer stated (based on reasonable estimates) that there is a likelihood of gaining economic benefit from the planned development project or the date on which the developer made binding arrangements for starting the development project.
In addition, the above-mentioned start date may not be later than:
„day taken by the developer first marketing and information activities to present the planned development project to potential customers.
the date of signature by the developer first a development agreement (sale) or
the date of notification by the developer of the start of construction work.’[4]
As examples of the start-up days of the development project are further mentioned: the start-up day of the construction project and the day of the application for the roll-off of the plot on which the development project is to be carried out, if the likelihood of a positive consideration of this application is high, and after receiving a positive decision the development project will be implemented.
Incompatible with point 4.4. CRS No 8, the developer can implement a development project on two methods, i.e.:
- 1) may commission the contractor, as an investor, to build a new building or to improve the previously acquired finished building,
- 2) can build a new building or improve previously acquired.
In the second the case of the developer is both an investor and a general contractor.
According to point 4.7. CRS No 8, the development agreement may provide for the buyer to make systematic payments to the developer.
If they do not involve the simultaneous transfer of control of the object of the development project to the buyer and the acquisition by the buyer of significant risks and benefits related to the object, similar to those normally arising from ownership rights to the completed stage of work, payments shall be considered as advances.
They are not revenue from the development project. The amount of payments regularly received from purchasers should be presented in the financial statements in the balance sheet liabilities as ‘ Advances received for deliveries’.
Finally, it is also worth mentioning point 4.8. CRS No 8, According to which the property: ‘it may be built either on the land which is owned or leased by the developer or on the land which is in the ownership or lease of the buyer, of the party to the development contract before the construction begins.
If the construction is carried out on the grounds of the buyer or the ownership or perpetual use of the land has been transferred to the buyer during the construction process, this may be an important reason for determining that the developer has transferred control of the property to the buyer during the development project.
This affects the date of the establishment of revenues and costs from an unfinished development project, as such an agreement is classified in construction service contracts and is settled in accordance with the provisions of the CRS 3 «Unfinished construction services».
[1] Communication from the Minister of Finance, Funds and Regional Policy dated 11 December 2020 on the announcement of a resolution of the Accounting Standards Committee on the adoption of an update of National Accounting Standard No. 8 „Development activities”, Official Journal of the Minister of Finance, Funds and Regional Policy, Warsaw, day 31 December 2020, item 38.
[2] As defined Under point 3.1. CRS No 8, The development project is “a development project within the meaning of Act dated 16 September 2011 on the protection of the rights of the purchaser of a dwelling or a single family house (Journal of Laws of 2019, item 1805 as amended) hereinafter referred to as the Buyer's Rights Protection Act, as well as any other process (action), resulting in the implementation of which, for the buyer (natural or legal person) or purchasers established or transferred, separate ownership of a dwelling or premises of a different purpose (e.g. office, commercial, warehouse) as well as ownership of a building or part of it, together with the land or right of perpetual use of the land and the corresponding infrastructure facilities. The development project includes construction or reconstruction within the meaning of Act dated 7 July 1994 Construction law (Journal of Laws of 2020, item 1333), as well as the factual and legal activities necessary for the commencement of construction (reconstruction) and the putting into service of the building and, in particular, the acquisition of the rights to the property on which the construction (reconstruction), the preparation of the construction project or the acquisition of the rights to the construction project and the obtaining of the required administrative permits laid down by separate provisions. A part of a development project may be an investment task, the object of which is to build or rebuild one or more buildings, if these buildings are to be put into service at the same time, according to the development project schedule, and form an architecturally-built whole. If an investment task has been identified, the explanations concerning the development project shall apply mutatis mutandis to the investment task.’
[3] Act dated 29 September 1994, on accounting (i.e. Journal of Laws of 2021, item 217 as amended)
[4] CRS No 8, point 4.3., paragraph third.